Banks must face up to bonus criticisms

Under-fire banks have been criticised for their unwillingness to argue their case under a barrage of media and political condemnation of 'bonus culture'.

Canary Wharf: banks need to explain bonus culture
Canary Wharf: banks need to explain bonus culture

Both the chancellor Alistair Darling and shadow chancellor George Osborne this week suggested they were ready to introduce measures to clamp down on the bonuses paid by the UK banking sector.

The comments follow news that, despite the banking crisis, UK banks paid out £7.6bn in bonuses between December and April (albeit a drop of some 40 per cent on last year) and reports that Barclays Capital offered five bankers a bonus package worth £30m.

A number of leading financial comms practitioners have criticised the sector for ceding the argument to the more 'hysterical' sections of the media, by not standing up for itself.

Stewart Prosser of Prosser Associates said: 'Banks have to a do a better job of explaining the link between the value they create and the compensation they give talented people.'

Ken Cronin, managing partner, London, Kreab Gavin Anderson, agreed (see box), saying a lack of engagement on the issues had only fostered 'mistrust and criticism'.

Over the past week, the British Bankers' Association has sought to argue the sector's case, with chief executive Angela Knight claiming UK pay rules were already 'more stringent' than in any other country and banking was not the only sector paying bonuses.

But comms professionals argue the banks themselves need to come out and justify their positions, given the array of differences in ownership of profitability now in the UK.

Alex Sandberg, chairman of College Hill, said a lack of explanation from the sector had enabled the media to bundle all forms of remuneration under the 'bonus' umbrella.

He noted most bonuses were paid in restricted equity, rather than cash sums, and linked to share-price performance: 'If shareholders are benefiting from the efforts of the individuals, why is that not proper? Some banks have done a poor job of explaining that.'

Those potential bonus payments of institutions in which the government holds a stake have come under particular scrutiny. But one financial comms practitioner argued this distinction on bonuses was largely a false one. He said state-owned banks must explain that payments of performance-linked bonuses were likely to benefit taxpayers if linked to a rise in the value of the Government's investment in these institutions.

How I see it

Ken Cronin, Managing partner, London, Kreab Gavin Anderson

Banks should not be quiet about bonuses - they need to lead by example and present the case for compensating people appropriately. London needs to maintain its attractiveness for the best and brightest, because without them the future of the City as a financial centre will be called into serious question.

The industry needs to recognise it does not operate in a vacuum and its rewards system must be better understood. Silence from the industry will attract mistrust and criticism. It is a difficult issue, but the leadership of banks must present their case more forcefully.

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